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CFA Level 1 Question of the Week – Financial Reporting and Analysis

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    • Avatar of Matt_AnalystPrepMatt_AnalystPrep
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        • CFA Charterholder
        12 Jul 2019 at 7:14 am
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        Which
        of the following statements is/are accurate regarding the common-size analysis
        of financial statements?

        I. A vertical
        common-size balance sheet presents all the line items as a percentage of total
        assets.

        II. A vertical
        common-size income statement presents all the line items as a percentage of net
        income.

        III. A horizontal
        common-size income statement calculates all line items as a percentage of the
        base year’s income statement.

        • A. II only
        • B. II & III
        • C. I & III
      • Avatar of Matt_AnalystPrepMatt_AnalystPrep
        Participant
          • CFA Charterholder
          15 Jul 2019 at 1:32 pm
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          The correct answer is C.

          Statement II is incorrect. A vertical common-size income statement presents all the line items as a percentage of REVENUE.

          Statements I is correct. A vertical common-size balance sheet presents all the line items as a percentage of total assets. 

          Statement III is correct. A horizontal common-size income statement calculates all line items as a percentage of the base year’s income statement.

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